Related party property sales and price

Discussion in 'Legal Issues' started by scientist, 14th Apr, 2019.

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  1. scientist

    scientist Well-Known Member

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    I often see properties sell for way under market value, but not ridiculously under. For example, a property that's worth 2m might have sold for 1m. I think most of these are family transfers, e.g. parent to child, early inheritances etc. But from a taxation perspective, do they generally get away with it? They've basically manage to defer much of the CGT (assuming the PPOR exemption didn't apply).

    And another, purely academic question - I wonder how many of these under-market sales are actually arms-length transactions where the buyer and seller have agreed to also exchange a briefcase of cash in addition to the reported low sales figure. So for example, say I buy a property genuinely worth 2m. Seller is not getting the PPOR exemption and is sitting on a CGT bill on a 1.5m gain or something huge. At the same time I've amassed a suitcase of cash from running a legitimate business. Can I somehow contract with the seller to buy the place for 1m, and also a 1m suitcase of cash? would such a contract be enforceable if in case settlement fails for some reason? Are contracts that hide certain details from a government authority, e.g. the ATO and Land Titles Office, but otherwise are validly constructed, enforceable?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    You are contracting to do something illegal so it is not a contract nor is it enforceable.

    You are complicit in a scheme to avoid paying the ATO the CGT due and LTO the full transfer duty.

    There are plenty of below market transactions eg divorce settlements, partial transfers, life estates, etc where what would otherwise be market value cannot be achieved. It may also be due to inappropriate marketing, poor agent selection, poor negotiation skills, attractive settlement conditions, sale of a development site with the vendor getting a new unit, forced sale or other circumstances.
     
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  3. Marg4000

    Marg4000 Well-Known Member

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    Plus you would have to find a vendor (or buyer) stupid enough to get caught up in an illegal transaction.
    Marg
     
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  4. scientist

    scientist Well-Known Member

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    Vendor getting a new unit - that's a new one I didn't know of before. Thanks
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    You are dangerously assuming here that it's not legit. Even if you sell at a reduced price both parties will often declare the true value to the ATO and the State Revenue for tax and stamp duty purposes making it legit

    There is the price and then there is the value. Many people follow the right steps and declare the value
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There is no requirement to transfer at market value, but duty and CGT will be levied on market value. Possibly some transfers slip through undetected, but this would be getting fewer year by year as information sharing and automation is becoming increasinly common.

    If a related party transfer Revenue NSW will also potentially ask for evidence of a valuation too.

    And money under the table could amount to money laundering charges, so why would you want to help a stranger launder money?
     
  7. scientist

    scientist Well-Known Member

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    Interesting, thanks. Generally though, are contracts enforceable if they have illegal elements in them, e.g. intent to evade tax?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Most taxing laws (incl stamp duty) contain anti-avoidance provisions for this reason. Eg stamp duty laws rely on market value for the value of the dutiable transfer unless another exemption, concession etc exists.

    I have seen people mistakenly transfer, realise their error and transfer it back. OSR can tax that with double duty !!. Both instruments may be valid as far as a transfer goes. (OSR will test - Was there a transfer ??) Its why a lawyer is best used to address correct and valid documents rather than a defective document to effect a transfer. The legal costs will pay for themselves.
     
  10. Marg4000

    Marg4000 Well-Known Member

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    Of course.

    But since the original post contained mention of “suitcase of cash...$1m”, it’s not unreasonable to assume a degree of illegality, including money laundering.
    Marg
     

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